On Tuesday, Tesla Motors Inc. announced a guaranteed-residual-value financing plan starting at $1,051 a month for the base 60 kWh Model S electric sedan. While paying off the 63-month loan, consumers can trade in the car after 36 months for a guaranteed price. After the announcement, Tesla founder and CEO Elon Musk spoke with Automotive News West Coast Editor Mark Rechtin about the plan, as well as other Tesla topics.

So, what prompted this idea?

We were figuring out how to come up with a product that was better than a lease, that had the best elements of ownership. People like to own things more than rent them. But leases have benefits like tax deductions, you don't have to worry about the residual value, and there's no big initial cash payment. So, how do we put all this together with the option of owning a car?

We wanted to provide the ability to give us back the car for the same residual value of a Mercedes S-class, and obviously that's backstopped by me, not just Tesla. You have protection on the residual value. After the tax credit, there is no down payment. Then when you factor in savings from going from gasoline to electric, and tax deductions, you can own the 85 kWh car for $543 out-of-pocket net.

Tesla immediately took some social media flak for including items like "value of time saved" by driving in the carpool lane and time not spent pumping gas. Those benefits are not exclusive to Tesla. Any EV or NGV gets that…

Even if you don't count the time savings, you can own the car for net cash out of pocket for $500 a month, no marketing gimmicks. Some people wanted to call bull---t on us because we had certain default [calculations] set up on the site, and we have fixed them. But if you select a 60 kWh pack and factor in gas savings and tax deductions, you are net out-of-pocket $500 a month before any time savings are taken into account. I do think there is value to considering not using a gas station.

But why use that as a marketing ploy, when you could have compared the Model S financing to a lease on a Porsche 911S or Aston Martin Vantage, except that it's a lease-to-own deal?

It's more like what you would pay for a BMW 5 series or Audi A6. It depends on your driving habits. I just want to make sure people really do appreciate that $500 is a real number and not some sort of marketing fiction, where you have to take into account non-cash items.

Is the residual value of the Model S set when the financing agreement is signed? Is it locked in to what ALG says it is at the time of the deal? What happens if the Mercedes S-class either jumps or plummets in value when turn-in time happens?

ALG is the benchmark and they have their prediction model, so we're going off their trailing 12-month average for a S550. But you really do own the car. I think the actual residual value is going to be a fair bit above that. The Roadster values have been excellent -- above 50 percent after three years. People drive those things pretty hard, so we feel pretty good about our residual values after three years. I am super confident. We thought about using the segment average, but there might be confusion as to what product we were referring to. I wanted a car people recognized. That's the reference point.

So, who takes the financial hit if the Model S actual resale value underperforms, Tesla or you? Was your pledge basically that, if losses are so great that Tesla can't cover them, you will?

There are some people who question the long-term viability of all electric car companies, and start-up companies in general. I wanted to give people absolute peace of mind no matter what happens with Tesla. I wanted to eliminate that worry.

Hyundai did a similar guarantee program a couple years back. Comparisons?

We looked at that program, and they used an outside insurance company. It would have taken us too long to get it set up, so I thought, "I'll be the insurance company." But we are meeting with an insurance company in the next week or two, so we may transition to that. But for now I'm happy to be the reinsurance company.

So, with a 43 percent residual value, that's $27,000 for a 60 kWh car after three years. Is that really what you think the car is going to be worth?

I think it will be worth more than that. We are putting the guarantee out there so that there's a [residual value] floor, so that it will be no less than that. With the structure of the program, the customer has the right to sell [the car back to Tesla], but not the obligation.

Are Tesla showrooms going to sell used Model S sedans? Where do trade-ins go?

They will. Even today we sell used Roadsters. We stopped [producing] at 2,500 units, so you can buy a certified pre-owned Roadster from a Tesla dealer, and it will be similar with the Model S. When we take the car back, we will do a thorough review, do any upgrades, then sell it again with some increased warranty level or something.

Upgrades? Such as if there are battery advances in the next few years? Will it be possible to swap out the original battery pack, or is today's buyer stuck with what he's got?

It may not be a three-year frame, but in four or five years, we'll have a step change in battery technology, so there will be a better pack than today. The pack today in the Model S costs half as much and has 50 percent more energy per unit mass than the Roadster.

So in 2018, could a 2013 Model S get a battery pack swapped out if there's a better one?

It can take a new battery pack. Even though the car is used, it could be better than the new car today in terms of increased range and functionality.

I just drove the Model S to Las Vegas and had to wait behind two other cars to use the Supercharger in Barstow. Are you going to improve the network?

We're making dramatic changes to the Supercharging system, huge increases. There's going to be an announcement in about two weeks. There will be a service announcement next week. Then the Supercharger announcement. Then there will be a mystery announcement. Then we'll shut up and hopefully people won't be sick of us. These things are all coming together and maturing at the same time.

What is this about this recent Model X "delay" story? At last spring's shareholders meeting, you said prototype production was going to be mid-14 at earliest, which meant serial production late '14. How did this story get a life of its own?

We're kind of puzzled by that. When we published the 10-K (the annual report filed with U.S. securities regulators), what was old news was thought of by some people as new news. They didn't check with us. But some people thought it was a revelation.

Any possibility that Tesla and Solar City could join forces for some sort of incentivized promotion, such as, "Buy a Tesla, get a free home solar panel?"

We do some joint promotion and it can be cost effective to have the high-powered connector installed at same time as doing solar panels. But Solar City is kind of backlogged, and we are too. We're just focused on internal execution issues. [For Tesla], service is my main focus right now; previously it was production and supply chain. At Solar City, we are ramping up the run rate that we can do quality installations without the wheels coming off the bus. We might do joint things in the future, but right now you can save money by doing the high-powered connector at the same time as solar panels.

Nice find. It seems they updated the calculator, I already noticed that you can get to around $500 - $600 / month, with the 60 kWh version, pretty easily. I wanted to check it from a different computer, without my stored settings, first, before posting.

Part of it involves, I think, giving up on matching the tax credits against the down payment. Which makes sense, since most of them come in later, and one has to make a down payment at first, still.

BTW, formatting makes it easier to read the linked article, but you could add formatting if you wanted to.

He also said in the Norway video that batteries could theoretically be swapped so I'm now expecting to be able to upgrade my pack in 4-5 years. Also, can't wait to hear the "huge increases" in the Supercharger network in 2 weeks. Awesome how the car keeps getting better.

Upgrades? Such as if there are battery advances in the next few years? Will it be possible to swap out the original battery pack, or is today's buyer stuck with what he's got?

It may not be a three-year frame, but in four or five years, we'll have a step change in battery technology, so there will be a better pack than today. The pack today in the Model S costs half as much and has 50 percent more energy per unit mass than the Roadster.

So in 2018, could a 2013 Model S get a battery pack swapped out if there's a better one?

It can take a new battery pack. Even though the car is used, it could be better than the new car today in terms of increased range and functionality.

" It can take a new battery pack. Even though the car is used, it could be better than the new car today in terms of increased range and functionality. "

Not a direct answer, but I suppose it'll do for now.

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How is that not a direct answer? Seems direct to me. What else do you want? Him to put 'Yes' in front of the whole sentence, so it reads "Yes, It can take a new battery pack. Even though the car is used, it could be better than the new car today in terms of increased range and functionality. "

The 'Yes' is implied in his answer and IMO I think that's pretty clear. If they come out with a new GenIII battery technology that leaves the Model S in the dust in terms of storage capacity, I think think some Model S owners might feel a little 'outdated' in technology. Why not offer a retrofit of the model S with a new battery that can hold, lets say, enough charge for 600 miles instead of 300? I'm sure it won't be cheap, but it will be much cheaper than buying a brand new car.

How is that not a direct answer? Seems direct to me. What else do you want? Him to put 'Yes' in front of the whole sentence, so it reads "Yes, It can take a new battery pack. Even though the car is used, it could be better than the new car today in terms of increased range and functionality. "

The 'Yes' is implied in his answer and IMO I think that's pretty clear. If they come out with a new GenIII battery technology that leaves the Model S in the dust in terms of storage capacity, I think think some Model S owners might feel a little 'outdated' in technology. Why not offer a retrofit of the model S with a new battery that can hold, lets say, enough charge for 600 miles instead of 300? I'm sure it won't be cheap, but it will be much cheaper than buying a brand new car.

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Actually, in light of the question (COULD it get...) it IS a direct answer. I guess what it doesn't directly answer is "WILL". They've said for a while now that the S is CAPABLE of getting a new pack (and swapping of course), but what has been nebulous so far is whether or not they'll offer/allow it. In fact, I do believe the answer was "no" at some point.

How is that not a direct answer? Seems direct to me. What else do you want? Him to put 'Yes' in front of the whole sentence, so it reads "Yes, It can take a new battery pack. Even though the car is used, it could be better than the new car today in terms of increased range and functionality. "

The 'Yes' is implied in his answer and IMO I think that's pretty clear. If they come out with a new GenIII battery technology that leaves the Model S in the dust in terms of storage capacity, I think think some Model S owners might feel a little 'outdated' in technology. Why not offer a retrofit of the model S with a new battery that can hold, lets say, enough charge for 600 miles instead of 300? I'm sure it won't be cheap, but it will be much cheaper than buying a brand new car.

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The reason I don't see it as a direct answer either is that he says 'can', not 'will'. Just cuz it can doesn't mean it will be offered and supported. Yes, having that option is better for the consumer, but not the company. It is less revenue for them in less new car purchases. And if it was a certainly that is would be offered, then it's would be a HUGE selling point for today's cars, more so than any retained value guarantee. And I think they'd be singing that feature from the hills. That they aren't doing that leaves me feeling like they aren't committed to it.

No, you will not be able to replace your current battery with a different size battery. We recommend configuring your Model S today with the battery that will meet your current, as well as future range needs.

No, you will not be able to replace your current battery with a different size battery. We recommend configuring your Model S today with the battery that will meet your current, as well as future range needs... ...unless, you order the 40kwh battery since you currently don't need the 60kwh range. In this specific case, you (or whoever you sell your car to) can replace the battery at any point in the future with a 60kwh battery. In fact, you don't even need to bring it in, just call us and we'll do it over the air.

I'm assuming that all this battery talk is with regard to the Model S. Any chance that for us Roadster owners a new battery is in the future for us that would have greater range and not cost $40K?
Hope so but doubt it.

No, you will not be able to replace your current battery with a different size battery. We recommend configuring your Model S today with the battery that will meet your current, as well as future range needs.

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I actually don't believe that one bit, regardless of what they say. AFAIK, it's the "web site" and "order specialists" that are telling everyone that they are not upgradeable. I personally think that this is just a marketing way to get you to buy the biggest battery now to increase their margins and thus make more money. If they stated that batteries would be upgradeable, how many of us would have bought the 40 or 60 instead of the 85? Probably A LOT. It's very understandable that they say "no not possible" right now to people buying today, even if they know that is a lie, because they are at a critical stage of the company's life where they need the most money they can get to make it over the hump and have sustainable profits.

Besides, has Elon ever said that the battery packs would never be upgradeable in the future? No. (obviously, he just stated VERY CLEARLY they they ARE UPGRADEABLE). He does not seem like the 'I'll lie to you now to get more money from you" type of guy. He's real. He wants the best. He does not care about money or personal gain. He wants electric cars to take over the world. He's even willing to put up his own money to prove it. You seriously think that when the new battery technology for Gen III comes out, lets speculate that it's 2-3x denser energy storage than the Model S, that he isn't somehow going to figure out a way to provide an upgrade to the Model S's? Everyone here can already get 200-300 miles. Do we really need to buy that year's Gen III or that year's Model S to get the battery? No. I doubt any of us drive more than 150 miles daily that would necessitate spending another $100k for the latest and greatest. He's not stupid either. He knows this. HOWEVER, if they provided an upgraded battery back that gets 600-1000 mile range, how many of us would spend $10-$20k to upgrade just for the hell of it even if they don't really need it? A lot. I would. It's a win/win for them. So it would be very wise for them to allow upgrades in the future.

I'm assuming that all this battery talk is with regard to the Model S. Any chance that for us Roadster owners a new battery is in the future for us that would have greater range and not cost $40K?
Hope so but doubt it.

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Well, there was mention by GeorgeB in an interview I posted here that the Model S batteries cost less and offer 50% more energy or something along those lines. I suppose the answer SHOULD be yes, but who knows.

And just to add to my above post, for people worried about resale value, in 2018-ish when the Gen III is out, and when the 2018-ish Model S also has this better battery technology too, what do you think the resale value of the 2012-2017 Model S's will be if the 2018's can get 2x the range due to the new tech? Probably not very much unfortunately. BUT, if we were to put the latest battery technology in, then suddenly this gives the resale value a huge boost because it contains the latest and greatest. That'll give a lof of incentive to keep the Model S's going. Suddenly the 2012 doesn't have a range disadvantage compared to the 2018. Really, at $20k, its like buying a new car anyway. But unlike building a new car, this is just a simple swap for Tesla. They don't even have to pay manufacturing costs for 'building a new car'. The margins would be really high. I will seriously be FLOORED if they don't offer upgraded batteries eventually. That's a huge amount of possible revenue that they'd be just passing on. Unless they have idiots working in the finance department, there's absolutely no way that they would pass on capturing this revenue source.

The people that had the cash to plunk down $100K are the people you want to lure to the new version in three to five years. Those that do not have it or will not spend it on a car will look to the secondary market. That alone is a real good reason not to poach new car sales with battery upgrades. Those that can afford it make Model S available for others by supplying the secondary market.

The people that had the cash to plunk down $100K are the people you want to lure to the new version in three to five years. Those that do not have it or will not spend it on a car will look to the secondary market. That alone is a real good reason not to poach new car sales with battery upgrades. Those that can afford it make Model S available for others by supplying the secondary market.

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Yes, that would be a reason to think the other way. So I think at this point they wouldn't want to commit to making any specific upgrade path available. It sounds like any upgrade path which they are talking about now might be created around newer battery technology, more so than around upgrading from 60 kWh to 85 kWh. And only once a sufficiently large step of improvement is available.

And just to add to my above post, for people worried about resale value, in 2018-ish when the Gen III is out, and when the 2018-ish Model S also has this better battery technology too, what do you think the resale value of the 2012-2017 Model S's will be if the 2018's can get 2x the range due to the new tech? Probably not very much unfortunately. BUT, if we were to put the latest battery technology in, then suddenly this gives the resale value a huge boost because it contains the latest and greatest. That'll give a lof of incentive to keep the Model S's going. Suddenly the 2012 doesn't have a range disadvantage compared to the 2018. Really, at $20k, its like buying a new car anyway. But unlike building a new car, this is just a simple swap for Tesla. They don't even have to pay manufacturing costs for 'building a new car'. The margins would be really high. I will seriously be FLOORED if they don't offer upgraded batteries eventually. That's a huge amount of possible revenue that they'd be just passing on. Unless they have idiots working in the finance department, there's absolutely no way that they would pass on capturing this revenue source.

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I thought about the whole battery upgrade when I was deciding if I should spend the money to buy a Model S in the first place and being able to swap out the major wear and tear component with a cheaper/better version in the future was definitely part of how I justified the purchase. But I also realized that if in the future my 85 kWh battery still meets my needs, I'm not going to spend a big chunk of change just to have the latest and greatest long range battery. If Tesla fully builds out the supercharger network (or better yet- licenses the technology to every gas station in the country), I don't think range will be as critical as it is at the moment.

The resale value of the model S will certainly drop as the technology gets cheaper. But as long as Tesla keeps releasing software updates and major drivetrain components don't start regularly failing over time, I don't think it will drop to near zero like my previous car did after 11 years and 196k miles (I was offered $400 from AutoNation for the trade in). If something is useful (and not likely to have expensive problems in the near future) people will still pay good money for it.